Making It Special

From tattoo studios to musical instrument insurance to cyber liability, three insurance professionals talk about how they transitioned from property-casualty generalists to niche specialization—and are succeeding in one of the toughest insurance markets in memory.

Susan Preston didn’t start her insurance career thinking she would be on a first-name basis with many of the tattoo legends, but that’s exactly what happened. Today her business, Professional Program Insurance Brokerage (PPIB), based in Novato, Calif., has 18 employees and impressive growth driven by its specialties: tattoo artists and piercers, permanent cosmetics, medispas, beauty salons and day spas, laser centers and its newest program, medical marijuana growers. In 2011, PPIB’s business is up 32 percent from last year.

In case you haven’t noticed, tattoos in the U.S. have gone mainstream. Ed Hardy-branded products can be found in every retail store. TV shows like "L.A. Ink" have made stars of tattoo artists like Kat von D. According to a Harris poll conducted in 2008, 14 percent of Americans now have one or more tattoos; and according to the Pew Research Center, 36 percent of Americans aged 18 to 25, and 40 percent of those 26 to 40, have at least one tattoo.

But when PPIB began writing program business for tattoo shops, hers was the only insurance business working with this specialty. Today, hundreds of tattoo and piercing shops are PPIB’s largest class of business, driven by a custom-designed program underwritten by Lloyd’s of London.

Preston began her career working for a wholesale and retail agency in San Francisco, where she received excellent advice from A. Mason Blodge, owner of the Cambridge General Agency (now defunct), who urged her to "always seek to do something different; anyone can write an apartment building, a grocery store or personal auto."

"I was more drawn to the wholesale business and nonadmitted markets to try and find things that were more innovative," she said. "You could design your own applications and policy endorsements."

Working on a marketing piece for the agency designed to generate business for beauty day spas, facial and hair salons, Preston learned about cosmetic tattooing for eyebrows and eyeliner and included it in the marketing brochure. "The minute the brochure hit the street, somebody called me and said, ’I’m going to be sending you lots of business if you can insure this,’" she said.

The burgeoning cosmetic tattoo business turned out to be a solid growth market, and Preston set up her own agency in 1993, specializing in salons and spas, including cosmetic tattooing.

A few years later, one of her customers pointed out that if she could write a policy for cosmetic tattooing, she should be able to do it for traditional tattooing as well. "Nobody else was doing it at the time," she said.

Preston studied the market and the field for about 6 months and developed a program for tattoo shops. She approached underwriters in the London market, finding them more responsive and innovative. Because PPIB was the only agency writing a tattoo shop-specific program at the time, her decision coincided with the growth of the tattoo trend in the early 1990s.

One year later, a body piercing shop called her asking her about coverage. Once again, Preston took 6 months to study the industry, learn about piercings, and presenting the London market with a program which even today still sets the standard for the body piercing industry.

In the early 2000s, most insurers were getting out of offering laser coverage for hair removal and facials. PPIB paid a doctor from Texas to spend 3 days in its office teaching about the laser business and how to properly underwrite and insure it. Although that industry still has a lot of claims, "because we spent so much time understanding the market, we’ve done relatively well in that marketplace," she said.

PPIB works closely with its customers on risk management. Because tattoo shops must adhere to state-mandated standards for cleanliness and hygiene, most of the actual claims issues involve typical small-business risks like slip-and-fall (there’s a lot of fainting in tattoo work). A few of the more interesting claims PPIB has experienced include:

A pole dancer tearing out her nipple piercing at work

A tattoo of the Mexican flag applied backward on a customer’s entire back

A dominatrix unable to "take control" of her profession due to laser burns from a laser hair removal center

A deer running through a medispa facility and frightening the patrons

A medical marijuana supplier who dropped off the product in a lunch box, then claimed it was stolen

A patient at a medical marijuana dispensary tripped; the clerk laughed at him and was sued for "humiliation."

The uniqueness of these risks makes it especially important for a broker to fully understand the businesses before attempting to specialize. For PPIB’s latest specialty, medical marijuana, Preston found a Sacramento-based broker who was an expert in the field regarding insurance risks involved in the practice. "He came to us with ideas on how to design a unique program, which worked very well for us," she said. This made it easier to present endorsements to underwriters that are unique while offering a general liability product, product liability, property coverage and coverage for finished stock. PPIB also put together a program for indoor crops, and transit, and also designed and copyrighted the endorsements that give some amount of legal fee coverage for dispensaries that are shut down by city, county or state authorities. "It’s a unique endorsement that meets the specific needs of the industry and allows our brokers to go out and sell something special," she said.

PPIB is working on three new programs, among them a weight-loss center program.

The music man

Peter Anderson came to insurance from a completely different direction than Susan Preston. A musician by training, he started his career as a semi-professional singer and member of the Boston Symphony Orchestra chorus. He got into insurance because he "needed a day job," and moved from selling life insurance to property-casualty in 1980, "wanting to build an asset, not just a commission list."

Anderson started his own generalist retail agency in 1983 and sold it in 2008 to launch Anderson Group International LLC, based in Fort Lauderdale, Fla., which focuses exclusively on musical instrument insurance. "And based on the results, I wish I had done it years earlier," he said. "Agencies need to find a niche and exploit it; it’s the wave of the future."

Working exclusively with OneBeacon, the agency has the underwriting pen for the program, sets rates and refers back to the underwriter based on authority granted to him. OneBeacon has access into Anderson’s quote module, which streamlines the quoting and binding process.

The agency already has doubled and nearly tripled its revenues since 2008. Starting with revenues in the low six figures in June 2008 as a part-time sideline at the original agency, it is now approaching mid six figures in revenue. "We fully intend to get to $1 million in commissions and fees in the next 3 to 4 years," he said.

Working with professional musicians taught Anderson what they need in the way of insurance for expensive musical instruments. One of his original agency’s first related accounts was the Boston Symphony Orchestra, which was the genesis of the niche, in 1991.

"Their musical instrument policy was renewing and they were dissatisfied with their current carrier; it all started there," he said. "There was a tremendous need for coverage because musical instruments are excluded on the standard homeowners’ policy. That’s where we saw the niche and the opportunity, and where I married my experience as an agent and a musician."

Over the years, Anderson’s original agency added other orchestras as clients, including the Utah, San Francisco, Phoenix and National Symphonies to name a partial list. In 1995, the agency created a program for freelance musicians that added a master policy through Anderson Group Musicians Alliance and issued certificates from that. Today this is the agency’s major focus, although it still adds orchestras and musicians’ associations as customers. Through the freelance program, the agency deals with musicians around the world with a program that covers dealers, collectors, hobbyists, enthusiasts, professionals and semi professionals, giggers—in short, the whole range of musicians.

Individual policies include many famous individuals, although Anderson says he can’t name them because of privacy concerns. "I insure a lot of artists, whether they’re playing a guitar or an expensive violin," he said. "Insuring big-name artists is not a principal focus, but I love it when the opportunity arises. We have a name at this point and given an opportunity to bid and quote on those kinds of people and their instruments is exciting."

Insured instruments range from those valued at under $1,000 to a violin with an estimated value of $8 million, and everything in between, Anderson said.

One of the more famous cases of musical instrument misplacement happened in 1999, when world-renowned cellist Yo Yo Ma (not an Anderson insured) left an 18th century $2.5 million cello in a taxi (the instrument was quickly recovered). Although cases like this are rare, Anderson encourages establishing provenance on instruments, as well as use of the SNAGG microchip program, similar to the system used on lost pets, to create an instrument pedigree and ownership trail in case of loss or theft. "Our overall loss experience in the history of our accounts is quite terrific," he said.

Considering the intimacy between musician and instrument, one might assume that Anderson’s business would be highly relationship driven but surprisingly, he says it’s "anything but." The brokerage’s six staff members (two in Canada, one in Spain, two in Florida and one in Massachusetts) all work out of their homes, and although the business maintains a brick-and-mortar address, Anderson has only used the office once, conducting most business through BlackBerry, iPad and the occasional laptop connection.

Most of Anderson’s inquiries come in through its website and are processed through a customized ticketing and quote management system developed by the brokerage’s IT people, an off-the-shelf product used to engineer software enhancements or projects and adapted to work with the brokerage’s quote flow system. The system is currently scaled to handle 25 quotes a day.

The policy and form are exclusive to the agency and have custom written coverage, now in its fourth generation. "We’re reacting to and trying to lead the marketplace with the very best coverage form we can offer and write, and we’re constantly tweaking it for whatever reason based on claims," he said. The average annual premium and policy fee is in the mid-$200s and growing. "Small schedules of one or more total instruments totaling $600 or even $2,000 is not the sandbox we play in," Anderson said.

Claims typically arise from instrument bumps and drops. Airlines and travel are another big exposure when people put instruments in improper cases and leave them to careless baggage handlers. "Ninety-five percent of claims can be avoided," Anderson said.

Legitimate claims can include trip-and-fall claims with instruments, the occasional theft, and one instance in which an insured was moving and his car was totaled on the highway with the instrument in tow. "It was only on the books for 2 weeks and ended up being a $19,000 claim," Anderson said.

"We try to ask all the right questions to get a sense if the person is responsible about the care and feeding of an instrument to make sure it’s got a fighting chance. Typically musicians take better care of their instruments than they do themselves, which is part of why we’ve had an enviable loss record."

The specializing generalist

For a 100-year-old agency with deep roots in traditional insurance, Thoits Insurance has a forward-thinking attitude when it comes to technology. A self-described generalist agency that specializes in cyber liability risk, Thoits prides itself on being "a generalist agency, which has been fortunate enough to specialize in a few profitable niches," said CEO Paul Saich.

"We don’t look for niche/program business. As a generalist, we will come across opportunities that can and will be developed into specialty programs. The key to our success is our relationships with our partner carriers. In today’s marketplace, there must be a strong working relationship between a broker/agent and an insurance company to develop a program. Trust between both parties is essential to a successful niche/program."

Niche/specialty business is approximately 20 percent of Thoits’ annual premium volume. "Our management philosophy is not to be too dependent on any one niche in fear of it controlling our decision making process," he said. "As a generalist, a maximum of 25 percent niche business is what we strive for."

Thoits Insurance was established in 1891 as an enterprise of the Thoits family, serving the commercial and personal insurance needs of small business in Palo Alto and the Stanford University community. In 1975, five employees bought out the Thoits family’s interests. Since then, the company has thrived as a 100 percent employee-owned company. Today, Thoits has approximately 75 employees handling $125 million in annual premium with a corporate office in San Jose, Calif., and an additional office in Santa Cruz, Calif.

One of those opportunities spotted by Thoits was the rapidly expanding cyber liability market.

"The general concept for cyber liability really kind of started taking off about 18 months ago," said Ted Way, client executive and cyber and management liability practice leader at Thoits. "That was when we started making these submissions on a regular basis."

The concept of cyber liability has actually been around for a while, but has only recently started to really gain traction, Way said. "Now we’re starting to see a lot of people pay attention to it, because of the technology and social media and web presence—everything that we’re doing over the Internet. It is becoming a really interesting topic." Cloud computing, cyber bullying and the growing use of electronic health records are combining to give the issue more relevance every day.

As is common in emerging markets, there is plenty of uncertainty in the cyber liability arena, such as who is liable, what steps are required to protect information, and what is considered sensitive information, Saich said. "We like our clients to err on the side of caution and understand that this exposure is not going away, that is, unless the Internet does," he said.

Cloud computing adds another level of uncertainty, with most businesses figuring that if "it’s not my server, it’s not my problem," Saich said. "This couldn’t be further from the truth. We always ask our insureds to think, ‘Who will be the target of claims?’ Let’s say a major hack occurs and 90 percent of our client’s data is stolen. Even if using cloud computing, the consumers affected aren’t going to go after server farms. They didn’t give their data to a server farm, our insured did."

Thoits’ generalist reputation helps the agency spot trends that could turn into niches. "Being a generalist gives us constant exposure to multiple lines of business that we can evaluate and determine if it is worth investing our resources in creating a niche," Saich said. "As an agency, we work with our partner carriers to see where we could carve out a niche given our existing book of business. We would never go into creating a program/niche without having a partner carrier willing to move forward with us from the start.

A niche/program is never built on price but on coverage—and a program’s ultimate success hinges on the carrier, Saich said. This requires a lot of preliminary research about the potential niche before the agency should even think about approaching a carrier, he said.

"If you have done your homework, a program/niche will be priced based off the credibility of the risk. It is up to the broker/agent to bring the best in class to the program. If you bring the best in class to the carrier, the price will be easily achieved. What attracts an insured to your niche/program is the coverage offering. Once the insured is in the underwriting stage, the broker/agent and partnered carrier will evaluate their credibility and make sure the insured is willing to accept the loss control and risk management requirements that make a niche/program successful for years to come."

Saich’s advice to an agency interested in getting into the niche program business?

"First, evaluate and understand your book of business. Next, work with your partnered carriers to see if there is a common interest in a specific class of business. Once this is determined, make sure you can set yourself apart with a coverage position or risk management offering that will attract additional insureds to your agency. Again, if you do your homework and underwrite effectively, price will not be an issue."

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